Super Contributions as an Inflation-Fighting Tool

The Reserve Bank of Australia (RBA) is set to make its next cash rate decision on Tuesday, and millions of Australians are holding their breath. The outcome could affect mortgage repayments, savings, and household budgets.

Economist Chris Richardson says there's an alternative way to cool spending: building retirement savings instead of increasing interest rates. He believes this approach would be more efficient than the current method, which mainly affects borrowers.

Richardson suggests lifting compulsory super contributions temporarily to reduce demand and fight inflation. This extra saving wouldn't help households with immediate expenses, but it could ease the squeeze on borrowers.

According to 2023 modelling from economist Tim Toohey at Yarra Capital Management, a 1-percentage-point rise in compulsory super could have a similar impact on household savings as a 1% rise in interest rates. However, this extra saving would be directed into retirement savings rather than paid as additional mortgage interest.

Economist Saul Eslake sees merit in the idea: 'If people's super contributions are raised temporarily as an alternative to increasing interest rates, they'll have less disposable income for as long as that applies.'